Sunday, July 31, 2016

the key economic release of the past week was the 1st, or advance estimate of 2nd quarter GDP from the Bureau of Economic Analysis, which was accompanied by an annual revision to national accounts data over the prior three years....the other widely watched releases of the past week included the June advance report on durable goods and the June report on new home sales, both from the Census bureau, and the Case-Shiller house price indexes for May from S&P Case-Shiller, which saw their national home price index remain 5.0% higher than the same month's report a year ago...in addition, this week saw the release of last three regional Fed manufacturing surveys for July: those were the Texas area manufacturing survey from the Dallas Fed, which reported its broadest general business activity index rose from -18.3 in June to –1.3 in July, still the 19th consecutive month of contractionary readings in the oil patch economy; the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, which reportedits broadest composite index rose to +10 in July from -10 in June, after a revised 0 in May and a +14 reading in April, suggesting a return to expansion in that region's manufacturing; and the Kansas City Fed manufacturing survey for July, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index fell to -6 in July, down from 2 in June and -5 in May, suggesting that the regional contraction, mostly in energy related industries, continues for the 17th month...and from the private sector, we had the Chicago Business Barometer for July from the ISM Chicago (pdf) whichsaw it's purchasing manager's index slip to 55.8 in July, after a 1½-year high of 56.8 in June, in an index where readings above 50 suggest growth...

Advance Estimate of 2nd Quarter GDP & Revisions From 2013 to Present

the Advance Estimate of 2nd Quarter GDP from the Bureau of Economic Analysis released on Friday included an annual revision to the past 3 years of GDP releases, revising previously published data from the first quarter of 2013 through the first quarter of 2016, which on net indicated that economic growth over the period from 2013 to 2015 was at a 2.2% annual rate, revised from the 2.1% composite annual growth previously published for that period of the recovery, which was still the weakest economic expansion since World War II...GDP growth for 2013 was revised from 1.5% to 1.3%; our growth rate for 2014 was revised from 2.6% to 3.0%, and our growth rate for 2015 was revised from 2.4% to 2.5%...

the first quarter of 2016, which had been revised to a growth rate of 1.1% when we reviewed it a month ago, has now been revised to show growth at a 0.8% rate… major components that were revised lower included residential fixed investment, which was revised from growth at a 15.6% rate to growth at a 7.8% rate, growth in real private inventory investment, which was revised from growth at a inflation adjusted $68.3 billion rate, to real growth at $40.7 billion rate, and a revision to exports, from growth at a 0.3% rate to contraction at a 0.7% rate....those downward revisions were partially offset by an upward revision to nonresidential fixed investment, from contraction at a 4.5% rate to shrinking at a 3.2% rate, an upward revision to personal consumption expenditures (PCE), from a 1.5% growth rate to growth at a 1.6% rate, an upward revision to state and local government spending, from growth at a 3.2% rate to growth at a 3.5% rate, a downward revision to imports (a negative for GDP), from decreasing at a 0.5% rate to decreasing at a 0.6% rate, and an upward revision to federal government spending, from contraction at a 1.6% rate to contraction at a 1.5% rate...thus the estimates for the 1st quarter of 2016 have gone from the initial estimate of growth at a 0.5% rate, to an 0.8% growth rate in the 2nd estimate, to a 1.1% rate of growth in the 3rd estimate, and finally back to growth at a 0.8% rate in this annual revision...

all of those revisions should leave you with the sense to take this initial advance estimate of 2nd quarter growth, which was released on Friday with some June data still not reported, with a grain of salt...the Advance Estimate of 2nd Quarter GDP indicated that the real output of goods and services produced in the US grew at a 1.2% annual rate over the output of the 1st quarter of this year, which we have just seen was revised to show growth at a 0.8% rate...the BEA cautions that the source data is incomplete and also subject to revisions, which have now averaged +/-0.6% in either direction from the advance to the third estimate, and +/- 1.2% from the advance estimate to the final reading...note that June construction, international trade and inventory data have yet to be reported, and that information on the assumptions used for those reports and unavailable source data for this advance estimate is provided in a technical note that is posted with the news release...

while we cover the details on the 2nd quarter below, remember that the press release for GDP reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit over 4 times of that what actually occurred over the 3 month period, and that they only use the prefix "real" to indicate that the change has been adjusted for inflation using prices chained from 2009, and then calculate all percentage changes in this report from those nonsense 2009 dollar figures, which we think would be better thought of as a quantity indexes...given the misunderstanding evoked by the text of the press release, all the data that we'll use in reporting here comes from the pdf for the 1st estimate of 2nd quarter GDP, which is linked to on the sidebar of the BEA press release, which also offer links to just the tables on Excel and other technical notes...specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since 2012, table 2, which shows the contribution of each of the components to the GDP figures for those quarters and years, table 3a, which shows the current dollar value of each of the GDP components, table 3b, which shows the inflation adjusted value of each of those components, and table 4, which shows the change in the price indexes for each of the components, and which is used to convert current dollar figures into units of output represented by chained dollar amounts...the intervening tables in this release (ie, 1a, 1b, 2a, 2b,etc) give us the previously published data for each of those metrics going back to the 4th quarter of 2012, should anyone be interested in the finer details of the annual revision..

personal consumption expenditures (PCE), which accounts for nearly 69% of GDP, grew at a 6.1% rate in current dollars in the 2nd quarter, in contrast to the first quarter increase at a revised 1.9% rate, but once the inflation adjustments were made with the PCE price indices for each quarter, real PCE rose 4.2% in the 2nd quarter after rising 1.6% in the first...consumer spending for durable goods rose at a 6.1% rate, mostly on a jump in spending for recreational goods and vehicles, but since prices for those durable goods fell by 2.3%, real output of durable goods represented by that spending increased at a 8.4% rate...consumer spending for non durables rose at a 8.5% rate, but the PCE price index for non-durables was up 2.5%, mostly on higher energy prices, reducing real growth in consumption of non durables to a 6.0% rate...in a like manner, personal outlays for services were reduced by a 2.5% deflator to show real 2nd quarter growth in services was at a 3.0% rate...thus, with real growth in all components of personal consumption expenditures, real growth in output of consumer durable goods added 0.60 percentage points to the change in GDP, real growth in non-durable goods output for consumers added 0.85 percentage points to 2nd quarter GDP growth, and real growth in services provided to consumers added 1.35 percentage points to the change in 2nd quarter GDP...

just as personal consumption expenditures are adjusted for inflation using the PCE price indices to arrive at real PCE, the other current dollar components of GDP are also adjusted for inflation with the quantity indexes shown in table 5 of the GDP pdf to yield the real change in the output of goods or services.....hence, real gross private domestic investment, which had fallen at a 3.3% annual rate in the 1st quarter as equipment investment and inventories fell, crashed at a 9.7 annual rate in the 2nd quarter, as investment in everything except intellectual property fell...real non residential fixed investment fell at a 2.2% annual rate as real investment in non-residential structures fell at a 7.9% rate and real investment in equipment fell at a 3.5% rate, while investment in intellectual property grew at 3.5% rate...so while real investment in intellectual property added 0.14 percentage points to the GDP growth rate, the decrease in real investment in non-residential structures and real investment in equipment subtracted 0.22 and 0.21 percentage points respectively...in addition, residential investment fell at a 6.1% rate, its first drop since the 1st quarter of 2014, and subtracted 0.24 percentage points from the 2nd quarter's GDP...for an easy to read table as to what's included in each of those investment categories, see the NIPA Handbook, Chapter 6, page 3...

meanwhile, in the first drop since the recession, investment in real private inventories fell by an inflation adjusted $8.1 billion in the 2nd quarter, after they had grown by an adjusted $40.7 billion in the 1st quarter, and as a result the $48.8 billion downward swing in inventory growth subtracted 1.16 percentage points from the 2nd quarter's growth rate, after a $16.2 billion decrease in inventory growth in the 1st quarter had subtracted 0.41 percentage points from that quarter's GDP growth...however, smaller inventories indicates that less of the goods produced during the quarter were being left "sitting on the shelf”, so their quarter over quarter decrease by $48.8 billion meant that real final sales of GDP were relatively greater by that much, and hence real final sales of GDP increased at a 2.4% rate in the 2nd quarter, in contrast to the real final sales increase at a 1.2% rate in the 1st quarter, when the change in the increase in inventories was smaller..

after adjustment for higher export and import prices, real exports increased and real imports were slightly lower in the 2nd quarter, as our real exports of goods and services rose at a 1.4% rate in the second quarter, after falling at a 0.7% rate in the 1st quarter, while our real imports fell at a 0.4% rate in the 2nd quarter after falling at a 0.6% rate in the 1st quarter...as you'll recall, increases in exports are added to GDP because they are part of our production that was not consumed or added to investment in our country (& hence not counted in GDP elsewhere), while increases in imports subtract from GDP because they represent either consumption or investment that was added to another GDP component that shouldn't have been because it was not produced here....thus the 2nd quarter increase in real exports added .16 percentage points to 2nd quarter GDP, in contrast to the first quarter export decrease, which subtracted 0.09 percentage points from that quarter's GDP...on the other hand, since imports subtract from GDP, their decrease at a 0.4% rate conversely meant that 0.06 more percentage points were added to 2nd quarter GDP....thus, with an upward rounding of the sum, our improving trade balance added a total of 0.23 percentage points to 2nd quarter GDP, after a revised barely improved trade deficit added 0.01 percentage points in the first quarter..

finally, real consumption and investment by branches of government fell at a 0.9% annual rate in the 2nd quarter, after increasing at a 1.6% rate in the first quarter, as federal government consumption and investment fell at a 0.2% rate and state and local consumption and investment fell at a 1.3% rate.....inflation adjusted federal spending for defense fell at a 3.0% rate and that subtracted 0.12 percentage points from 2nd quarter GDP growth, while real non-defense federal consumption and investment rose at a 3.9% rate and added 0.11 percentage points to GDP...note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of goods or services....meanwhile, state and local government investment and consumption expenditures, which fell at a 1.3% annual rate, subtracted 0.14 percentage points from the quarter's growth rate, as real state and local investment fell at a 10.4% rate and accounted for 0.20 percentage points of GDP subtraction...

our FRED bar graph below has been updated to include 2nd quarter GDP as well as the revisions to each of the GDP components from prior years resulting from this week's annual revision...each color coded bar below shows the real change, in billions of chained 2009 dollars, in one of the major components of GDP over each quarter since the beginning of 2013...in each quarterly grouping of seven bars on this graph, the quarterly changes in real (ie, inflation adjusted) personal consumption expenditures are shown in blue, the changes in real gross private investment, including structures, equipment and intangibles, are shown in red, the quarterly change in private inventories is in yellow, the real change in imports are shown in green, the real change in exports are shown in purple, while the real change in state and local government spending and investment is shown in pink, and the real change in Federal government spending and investment is shown in grey...those components of GDP that contracted in a given quarter are shown below the zero line and subtract from GDP, those that are above the line grew during that quarter and added to GDP; the exception to that is imports in green, which subtract from GDP, and which are shown on this chart as a negative, so that when imports shrink, as they did in the recent quarter, they will appear above the line as an addition to GDP, and when they increase, they'll appear below the zero line...it’s fairly clear that our personal consumption expenditures has underpinned GDP growth over this period, while increasing imports, and more recently falling inventory investment, have been the major negatives…in the 2nd quarter, on the far right, we see that our personal consumption expenditures was only major positive, while both fixed investment and inventory investment dragged GDP lower…

June Durable Goods: New Orders Down 4.0%, Shipments Up 0.4%, Inventories Down 0.2%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for May (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods fell by $9.3 billion or 4.0% to $219.8 billion in June, following a revised drop of 2.8% in May new orders, which had been originally reported as a 2.2% decrease...year to date new orders are now statistically unchanged from those of 2015, vs the 1.7% year over year change we saw in this report last month...as is usually the case, the volatile monthly change in new orders for transportation equipment drove the June headline change, as those transportation equipment orders fell $8.5 billion or 10.5 percent to $72.2 billion, on a 58.8% decrease to $6,745 million in new orders for commercial aircraft....excluding new orders for transportation equipment, other new orders were still down 0.5% in June, as new orders for computers and electronic products were also down 2.2% to $23,606 million...at the same time, the important new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, were up 0.2% to $62,330 million...

the seasonally adjusted value of June's shipments of durable goods, which were inputs into various components of 2nd quarter GDP after adjusting for changes in prices, rose by $0.9 billion or 0.4 percent to $232.5 billion, after May shipments were revised from a decrease of 0.2% to an decrease of 0.3%....a 1.1% increase in shipments of transportation equipment drove the change, as such shipment rose $1.1 billion to $81.2 billion, as the value of shipments of motor vehicles rose 2.7% to $55,041 million...excluding that volatile sector, the value of other shipments of durable goods fell 0.2%, as new orders for nondefense capital goods excluding aircraft were down 0.4% to $62,762 million, which was reflected in the contractionary 2nd quarter GDP equipment investment figures...

meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, fell for the 11th time in 12 months, decreasing by $0.7 billion or 0.2 percent to $381.5 billion, after May's inventories were revised from a 0.3% decrease to a 0.4% decrease...again, falling inventories of transportation equipment were the major factor in the inventory decrease, as they fell $1.1 billion or 0.9 percent to $123.0 billion, on a 2.2% decrease to $62,451 million in inventories of civilian aircraft...excluding the drop in inventories of transportation equipment, all other durable goods inventories increased 0.2% to $258,535 million...

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, fell for the first time in four months, dropping by $9.7 billion or 0.9 percent to $1,127.9 billion, following a May increase that was revised from 0.2% to statistically unchanged...a $9.0 billion or 1.1 percent to $774.9 billion decrease in unfilled orders for transportation equipment was responsible for most of the decrease, but unfilled orders excluding transportation equipment were still down 0.2% to $353,029 million....compared to a year earlier, the unfilled order book for durable goods is now 1.9% below the level of last June, with unfilled orders for transportation equipment 2.7% below their year ago level, largely on a 5.7% decrease in the backlog of orders for motor vehicles...

June New Home Sales Trending Above Those of a Year Ago

the Census report on New Residential Sales for June (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 592,000 new homes a year, which was 3.5 percent (±23.9%)* above the revised May rate of 572,000 new single family homes a year and 25.4 percent (±27.9%)* above the estimated annual rate that new homes were selling at in May of last year....the asterisks indicate that based on their small sampling, Census could not be certain whether June new home sales rose or fell from those of May or even from those in June a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series....since these initial new home sales reports are not very reliable and often see significant revisions, reports that new home sales were at an eight year high should be taken with a large grain of salt; April's reported 8 year high has since been revised away...with this report; sales new single family homes in May were revised from the annual rate of 551,000 reported last month to a 572,000 a year rate, April's annualized home sale rate, initially reported at 619,000, were revised from last months downward revision of 586,000 down to 572,000, while the annual rate of March's sales, revised from 531,000 to an annual rate of 522,000 last month, were now revised higher, to an annual rate of 537,000...

the annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of Census field reps, which showed that approximately 54,000 new single family homes sold in June, unchanged from the 54,000 new homes that sold in May but down from the 56,000 new homes that sold in April....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in June was $306,700, up from the median sale price of $288,800 in May, while the average June new home sales price was $358,200, up from $351,400 average in May, and up from the average sales price of $329,300 in June a year ago....a seasonally adjusted estimate of 244,000 new single family houses remained for sale at the end of June, which represents a 4.9 month supply at the June sales rate, down from the reported 5.3 month supply in May....for more details and graphics on this report, see Bill McBride's two posts, New Home Sales increased to 592,000 Annual Rate in June, Highest since 2008 and A few Comments on June New Home Sales...

New Housing Construction Little Changed in June, New Permits Down YoY

the June report on New Residential Construction (pdf) from the Census Bureau estimated that the widely watched count of new housing units started in June was at a seasonally adjusted annual rate of 1,189,000, which was 4.8 percent (±13.5%) above the revised May estimated annual rate of 1,136,000 housing units started, but which was still 2.0 percent (±12.9%) below last June's pace of 1,213,000 housing starts a year...the asterisks indicate that the Census does not have sufficient data to determine whether housing starts actually rose or fell over the past month or even over the past year, with the figure in parenthesis the most likely range of the change indicated; in other words, June's housing starts could have been down by 8.7% or up by as much as 18.3% from those of May, with even larger revisions possible...in this report, the annual rate for May housing starts was revised from the 1,164,000 reported last month to 1,136,000, while April starts, which were first reported at a 1,172,000 annual rate, were revised down from last month's initial revised figure of 1,076,000 annually to 1,155,000 annually with this report....those annual rates of starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by Census field agents, which estimated that 111,600 housing units were started in June, up from the 106,200 units started in May...of those housing units started in June, an estimated 76,700 were single family homes and 33,300 were units in structures with more than 5 units, up from the revised 71,100 single family starts but down from the 34,700 units started in structures with more than 5 units in May...

the monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data...in June, Census estimated new building permits were being issued at a seasonally adjusted annual rate of 1,153,000 housing units, which was 1.5 percent (±1.3%) above the revised May rate of 1,136,000 permits, but 13.6 percent (±0.6%) below the rate of building permit issuance in June a year earlier...the annual rate for housing permits issued in May was revised from 1,138,000 to 1,136,000....again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected by canvassing census agents, which showed permits for 114,000 housing units were issued in June, up from the revised estimate of 107,700 new permits issued in May...the June permits included 74,400 permits for single family homes, up from 70,200 in May, and 36,600 permits for housing units in apartment buildings with 5 or more units, up from 34,900 such multifamily permits a month earlier... for graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts increased to 1.189 Million Annual Rate in June and Comments on June Housing Starts...

Existing Home Sales Up 1.1% in June

the National Association of Realtors (NAR) reported that their seasonally adjusted count of existing home sales rose 1.1% from May to June, projecting that 5.57 million homes would sell over an entire year if the June home sales pace were extrapolated over that year, a pace that was also 3.0% greater than the annual sales rate projected in June of a year ago, and the highest monthly annual rate since February 2007...that came after an annual sales rate of 5.51 million homes in May, which was revised from the originally reported 5.53 million annual sales rate, and an annual home sales rate of 5.43 million in April...the NAR also reported that the median sales price for all existing-home types in June was $247,700 in June, up from $238,900 in May and 4.8% higher than in June a year earlier, which they report as "the 52nd consecutive monthly year over year increase in home prices".....the NAR press release, which is titled "Existing-Home Sales Ascend Again in June, First-time Buyers Provide Spark", is in easy to read plain English, so if you're interested in the details on housing inventories, cash sales, distressed sales, first time home buyers, etc., you can easily find them in that press release...as sales of existing properties do not add to our national output, neither these home sales nor the prices for which these homes sell are included in GDP, except insofar as real estate, local government and banking services are rendered…

since this report is entirely seasonally adjusted and at a not very informative annual rate, we usually look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month...this unadjusted data indicates that roughly 583,000 homes sold in June, up by 11.0% from the 525,000 homes that sold in May, but just 1.9% more than the 572,000 homes that sold in June of last year, so we can see there was again a seasonal adjustment in the annualized published figures of over 10% to correct for the typical early summer increase in home sales...that same pdf indicates that the median home selling price for all housing types rose 3.8%, from a revised $238,900 in May to $247,700 in June, while the average home sales price was $292,100, up 4.0% from the $280,900 average in May, and up 4.2% from the $280,200 average home sales price of June a year ago, with the regional average home sales prices ranging from a low of $235,900 in the Midwest to a high of $379,900 in the West...for additional coverage with long term graphs on this report, see "Existing Home Sales increased in June to 5.57 million SAAR" and "A Few Comments on June Existing Home Sales" from Bill McBride at Calculated Risk...

June Retail Sales up 0.6% After May Revised 0.3% Lower

seasonally adjusted retail sales rose 0.6% in June after retail sales for April and May were revised lower....the Advance Retail Sales Report for June (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $457.0 billion during the month, which was an increase of 0.6 percent (±0.5%)* from May's revised sales of $454.4 billion and 2.7 percent (±0.7%) above the adjusted sales in June of last year...May's seasonally adjusted sales were revised from the $455.6 billion originally reported to $454.4 billion, while April sales were also revised lower, from $453.6 billion, to $453.4 billion, with this release....estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales actually fell 1.5%, from $469,523 million in May to $462,314 million in June, while they were up 3.1% from the $448,229 million of sales in June a year ago...

included below is the table of the monthly and yearly percentage changes in sales by business type taken from the Census pdf....the first pair of columns below gives us the seasonally adjusted percentage change in sales for each type of retail business from May to June and the year over year percentage change for those businesses since last June; the second pair of columns gives us the revised figures for May's report, with April to May and the May 2015 to May 2016 change shown; for your reference, our copy of this same table as it appeared in the May report, before this month's revisions, is here....lastly, the third pair of columns shows the percentage change of the recent 3 months of sales (April, May and June) from the preceding three months (January, February and March) and from the same three months of a year ago....

June Consumer Prices Up 0.2% on Higher Energy Prices, Rents

the consumer price index rose 0.1% in June, as price increases for fuels and core services were partially offset by lower prices for food and core commodities...the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose 0.2% in June after rising 0.2% in May, 0.4% in April and 0.1% in March....the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose from 240.236 in May to 241.038 in June, which left it statistically 1.01% higher than the 238.638 index reading of last June....regionally, prices for urban consumers have risen 1.6% in the West, and 0.8% everywhere else over the past year, with generally greater price increases within regions in cities of more than 1,500,000 people...with lower food prices mostly offsetting higher energy prices, seasonally adjusted core prices, which exclude food and energy, also rose by 0.2% for the month, with the unadjusted core index rising from 247.554 to 247.821, which puts it 2.26% ahead of its year ago reading of 242.354...

the volatile seasonally adjusted energy price index rose by 1.3% in June after rising by 1.2% in May and 3.4% in April but falling by more than 11.5% over this past winter, and thus the energy price index still remains 9.4% lower than it was in June a year ago....prices for energy commodities were 3.3% higher while the index for energy services fell by 0.5%, after rising by 0.2% in May....the increase in the energy commodity index included a 3.3% increase in the price of gasoline, the largest component, and a 3.3% increase in the price of fuel oil, while prices for other fuels, including propane, kerosene and firewood, averaged a 2.5% increase…within energy services, the index for utility gas service fell by 0.4% after rising by 1.7% in May, as utility gas was still priced 5.0% lower than it was a year ago, while the electricity price index fell by 0.5%, after falling by 0.2% in May...energy commodities are still priced 15.3% below their year ago levels, with gasoline prices averaging 16.4% lower than they were a year ago...meanwhile, the energy services price index is 2.5% lower than last June, as even electricity prices have fallen 1.8% over that period..

the seasonally adjusted food price index fell 0.2% in June, after it fell by 0.2% in May, as prices for food purchased for use at home fell 0.3% while prices for food away from home rose 0.2%, as average prices at fast food outlets rose 0.1% while average prices at full service restaurants rose 0.2%...for food at home, all major grocery store food group price indexes declined except for the price index for cereals and bakery products, which was 0.1% higher on a 0.5% increase in prices for white bread....the price index for the meats, poultry, fish, and eggs group fell by 0.7% as prices for eggs fell 5.7%, poultry prices fell 0.9%, and beef prices averaged 0.8% lower....the index for dairy products was 0.3% lower, as milk prices fell 1.0% and cheese prices fell 0.7%... the fruits and vegetables index fell 0.1% in June after falling by 0.7% in May and 0.5% in April as a 0.2% decrease in prices for fresh vegetables, including a 2.4% drop in lettuce prices, were offset by 0.3% higher prices for processed fruits and vegetables...the beverages index was 0.7% lower on a 1.5% decrease in prices for frozen noncarbonated juices and drinks and a 1.9% drop in prices for non-coffee beverage materials including tea.. lastly, prices in the other foods at home category were on average unchanged as 2.8% higher prices for margarine offset a 3.3% drop in prices for peanut butter.....among food line items, only eggs, which are now priced 26.9% lower than a year ago, and ground beef, which has fallen by 10.5%, have seen a price change greater than 10% over the past year...the itemized list for price changes in over 100 separate food items is included at the beginning of Table 2, which gives us a line item breakdown for prices of more than 200 CPI items overall...

among the seasonally adjusted core components of the CPI, which rose by 0.2% in June after rising by 0.2% in April and May, the composite of all goods less food and energy goods fell by 0.2%, while the composite for all services less energy services was 0.3% higher....among the goods components, which will be used by the Bureau of Economic Analysis to adjust May retail sales for inflation in national accounts data, the index for household furnishings and supplies fell by 0.3% on a 1.1% decrease in prices for major appliances, the apparel price index was 0.4% lower, and prices for transportation commodities other than fuel were down 0.5%, as prices for used cars and trucks were down 1.1% after falling 1.3% in May...at the same time, prices for medical care commodities were 1.1% higher on a 1.3% increase in prescription drug prices...meanwhile, the recreational commodities index fell 0.9% as TV prices fell another 2.7%, and the education and communication commodities index was 0.1% lower as a 2.0% price drop for telephone hardware offset a 1.9% increase in prices for educational books and supplies...lastly a separate index for alcoholic beverages rose 0.1% on a 0.8% increase in prices for whiskey bought for use at home, while the index for ‘other goods’ was unchanged.

within core services, the price index for shelter rose 0.3% on a 0.4% increase in rents and a 0.3% increase in owner's equivalent rent while costs for lodging away from home at hotels and motels rose 0.6%, and costs for water, sewers and trash collection were 0.2% higher....the index for medical care services rose 0.2% as physicians' services rose 0.3%, the transportation services index rose 0.3% on a 3.4% increase in car and truck rentals...meanwhile, the recreation services index rose 0.6% as video & audio rental services rose 1.9% and admissions to sporting events rose 3.3%... at the same time, the index for education and communication services rose 0.1% as a 0.6% decrease in landline telephone services was offset by 0.5% higher college tuition...lastly, other personal services were up 0.4% on a 1.3% increase in tax return preparation and other accounting fees and a 0.6% increase in legal fees...among core prices, a 13.0% increase in ship fares and a 12.1% year over year increase in moving and storage expenses were the only line items with annual increases greater than 10%, while only televisions, which are now 19.5% cheaper than a year ago, saw prices drop by more than 10% over the past year...

Estimating the Change in Real June Retail Sales Using the June CPI

with this June CPI release, we can now attempt to estimate the economic impact of the June retail sales figures we covered earlier, which saw nominal sales rise 0.6%...for the most accurate estimate, and the way the BEA will be figuring 2nd quarter GDP at the end of July, we would have to take each type of retail sales and adjust it with the appropriate change in price to determine real sales; for instance, June’s clothing store sales, which fell by 1.0% in dollars, should be adjusted with the price index for apparel, which indicated prices for clothing were down by 0.4%, which tells us that real retail sales of clothing were actually down by 0.6% in June. Then, to get a GDP relevant quarterly change, we'd have to compare such adjusted real clothing sales for April, May and June with the similarly adjusted real clothing consumption for the 3 months of the first quarter (January, February and March), and then repeat that process for each other type of retailer, obviously quite a tedious task to undertake manually. The short cut we usually take to get a quick and dirty estimate of the change in real sales for the month is to apply the composite price index of all commodities less food and energy commodities, which was down 0.2%, to retail sales less grocery, gas station, and restaurant sales, which accounts for nearly 70% of aggregate retail sales. those sales were up by more than 0.5% in June, while their composite price index was down 0.2%, meaning that real retail sales excluding food and energy sales were up by more than 0.7%. then, for the rest of the retail aggregate, we find sales at grocery stores were up 0.3% in June, while prices for food at home were down 0.3%, suggesting a real increase of around 0.6% in the quantity of food purchased for the month. Next, sales at bars and restaurants were down 0.3% in dollars, but those dollars also bought 0.2% less, so real sales at bars and restaurants were down by about 0.5%. And while gas station sales were up 1.2%, gasoline prices were up 3.3%, suggesting a substantial real decrease in the amount of gasoline sold, with the caveat that gas stations sell more than gasoline, and we don't have the detailed info on that. Weighing the food and energy components at roughly 30% of total retail sales, and core sales at 70%, we can estimate that the aggregate of real retail sales in June were up about 0.6% from those of May…

next, to see how the change in real June sales impacts the change in 2nd quarter GDP, we have to compare those June sales to those of the first quarter...however, to get an approximation of the real adjusted changes for June vis a vis the 3 months of the first quarter, we have to adjust the changes for the downward revision to April and May sales that were included in the June report; ie., with May sales revised downward by roughly 0.3%, that means June real sales are only up by about 0.4% from previously published figures...using Table 7 in the pdf for the May personal income and outlays report, which gives us already inflation adjusted changes for the prior months, we find that real sales of goods were up 0.1% in February, up 0.3% in March, 1.5% in April, and 0.6% in May...since the downward revision to May's growth was 0.278%, and the downward revision to April's growth was less than half a percent, a 0.3% revision to May will suffice for our estimate....that revision leaves our revised month over month real sales growth at 0.1% in February, 0.3% in March, 1.5% in April, 0.3% in May, and 0.6% in June...that works out to more than 1.7% real growth in retail sales from the first quarter to the 2nd....in national accounts terms, that's real growth in consumption of goods at an annual rate of almost 7.0%, a pace that will add at approximately 1.66 (+/-0.10) percentage points to 2nd quarter GDP from the goods portion of personal consumption expenditures alone..

Industrial Production Up 0.6% in June on Hot Weather and Jump in Auto Output

the Fed's G17 release on Industrial production and Capacity Utilization indicated that industrial production rose by 0.6% in June after falling by a revised 0.3% in May...industrial production is still down 0.7% from a year ago, as it fell at a 1.0% annual rate in the 2nd quarter, the 3rd consecutive quarterly decrease...to the extent that this report plays into GDP, that quarterly drop suggests a net subtraction from GDP of that magnitude in the components that this report influences...the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, rose to 104.1 in June from 103.5 in May, which was originally reported at 103.6...at the same time, the April reading for the index was revised down from 104.0 to 103.8...

the manufacturing index, which accounts for more than 77% of the total IP index, increased by 0.4, from 102.8 in May to 103.2 in June, largely due to a 6.3% increase in motor vehicle assemblies, more than reversing the May decrease, and returning the year over year change in the manufacturing index to a positive 0.4%.... meanwhile, the mining index, which includes oil and gas well drilling, saw its second increase in a row, as it rose from 102.5 in May to 102.7 in June, although it remains 10.5% lower than it was a year ago....finally, the utility index, which often fluctuates due to above or below normal temperatures, rose 2.4% in June after falling a revised 0.9% in May, as warmer weather than is typical for June boosted use of air conditioning and brought the utility index back to 0.5% above its year earlier reading...

this report also includes capacity utilization figures, which are expressed as the percentage of our plant and equipment that was in use during the month, and which indicated that seasonally adjusted capacity utilization for total industry rose to 75.4 in June from 74.9% in May....capacity utilization by NAICS durable goods production facilities rose from 75.5% in May to 76.1 in June, while capacity utilization for non-durables slipped from 74.9% to 74.8%....capacity utilization for the mining sector rose to 73.6% in June, up from 73.2% in May, which was originally reported as 73.1%, while utilities were operating at 73.1% of capacity during June, up from their 77.5% of capacity during May...for more details on capacity utilization by type of manufacturer, see Table 7: Capacity Utilization: Manufacturing, Mining, and Utilities, which shows the historical capacity utilization figures for a dozen types of durable goods manufacturers, 8 classifications of non-durable manufacturers, mining, utilities, and capacity utilization for a handful of other special categories....

Producer Prices Rise 0.5% in June on Higher Energy Prices and Retail Margins

the seasonally adjusted Producer Price Index (PPI) for final demand increased by 0.5% in June as prices for finished wholesale goods rose by 0.8%, while margins of final services providers rose by 0.4%...this followed a May report that showed the overall PPI had increased 0.4%, with prices for finished goods up 0.7% while final demand for services rose 0.2%....producer prices are now up 0.3% from a year ago, the largest year over year increase since December 2014, as most of the price decreases relating to lower oil and commodity prices were seen in early 2015...

as we noted, the index for final demand for goods, aka 'finished goods', was up 0.8% in June, after rising by 0.7% in May and 0.2% in April, as the index for wholesale energy prices rose 4.1% from May to June, the price index for wholesale foods was 0.9% higher, while the index for final demand for core wholesale goods (ex food and energy) was unchanged...major wholesale price changes included a 17.0% increase for home heating oil, and a 9.9% increase in prices for gasoline, which alone accounted for half of the rise in the wholesale goods index...despite the rise in wholesale foods overall, wholesale eggs were 25.9% lower, for the largest decrease in this final demand for goods category...

meanwhile, the index for final demand for services rose by 0.4% in June after rising 0.2% in May, 0.1% in April and falling 0.2% in March, as the index for final demand for trade services rose 0.7%, the index for final demand for transportation and warehousing services rose 0.5%, and the core services index for final demand for services less trade, transportation, and warehousing services was 0.4% higher....noteworthy among trade services, seasonally adjusted margins for fuels and lubricants retailers were 22.8% higher, margins for major household appliances retailers were 17.3% higher, and margins TV, video, and photographic equipment and supplies retailers were 13.6% higher....among transportation and warehousing services, margins for airline passenger services rose 2.4%...in the core final demand services index, margins for cable and satellite subscriber services rose 3.0% and margins for securities brokerage, dealing, investment advice, and related services were 3.6% higher..

this report also showed the price index for processed goods for intermediate demand increased by 0.9%, after rising 0.8% in May and 0.3% in April but falling in each of the prior nine months, as intermediate processed goods prices still remain 4.1% lower than in June a year ago.... the price index for processed foods and feeds rose 1.7%, prices for intermediate energy goods rose by 4.0% while the price index for processed goods for intermediate demand less food and energy was 0.2% higher...meanwhile, the price index for intermediate unprocessed goods was up by 2.8% in June after rising by 1.3% in May, 2.6% in April and 1.9% in March, in the only increases in that index since June of last year...driving that May increase was a 8.5% increase in the index for crude energy goods, while the index for unprocessed foodstuffs and feedstuffs rose 0.4%, and the index for core raw materials other than food and energy materials was 0.3% lower.... this raw materials index is now 11.4% lower than it was a year ago, as more than half of the year over year decrease of 26.4% seen in November has now been retraced...

lastly, the price index for services for intermediate demand was 0.8% higher in June after falling 0.2 in May and rising 0.1% in April, on a 0.8% increase in the core price index for services less trade, transportation, and warehousing for intermediate demand and a 1.1% increase in the index for trade services for intermediate demand, while the index for transportation and warehousing services for intermediate demand was 0.4% higher...driving the increase in prices for services for intermediate demand was a 1.7% decrease in the index for loans services (partial) and higher indexes for services related to securities brokerage and dealing; machinery and equipment parts and supplies wholesaling...over the 12 months ended in May, the year over year price index for services for intermediate demand, which has never turned negative, is now 1.6% higher than it was a year ago... May Wholesale Inventories up 0.1%, Total Business Inventories Up 0.2%

in advance of the composite business inventories release on Friday, the Census released their report on Wholesale Trade, Sales and Inventories for May (pdf) on Tuesday, which indicated that seasonally adjusted sales of wholesale merchants rose 0.5 percent (+/-0.5%)* to $435.5 billion from the revised April estimate of $433.2 billion, but were still down 2.5 percent (+/-1.1%) from May a year earlier...April's preliminary wholesale sales estimate was revised downward $1.0 billion or 0.2 percent....May sales of durable goods were up 0.6 percent (+/-0.7%) from April, but were down 0.6 percent (+/-1.6%) from a year earlier, while sales of nondurable goods were up 0.5 percent (+/-0.5%) from April, but were down 4.1 percent (+/-1.8%) from last May...at the same time, this release reported that seasonally adjusted wholesale inventories were valued at $589.2 billion at the end of May, 0.1% (+/-0.2%)* higher than the revised April level and 0.5 percent (+/-1.2%)* above last May's level, while April's preliminary inventory estimate was revised upward $0.5 billion or 0.1%...wholesale durable goods inventories were up 0.1 percent (+/-0.4%)* from April but were down 2.3 percent (+/-1.2%) from a year ago, while inventories of nondurable goods were up 0.2 percent (+/-0.2%) from April and were up 5.1 percent (+/-1.6%) from last May...

then on Friday, following the release of the June retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for May (pdf), which incorporates the revised May retail data from that June report and the earlier published wholesale and factory data to give us a complete picture of the business contribution to the economy for that month....according to the Census Bureau, total manufacturer's and trade sales were estimated to be valued at a seasonally adjusted $1,291.8 billion in May, up 0.2 percent (±0.2%)* from April revised sales, but down 1.4 percent (±0.4%) from May sales of a year earlier...note that total April sales were revised from the originally reported $1,290.2 billion to $1,288,674 million....manufacturer's sales were statistically unchanged from April at $456,524 million in May, while retail trade sales, which exclude restaurant & bar sales from the revised April retail sales reported earlier, rose 0.2% to $399,837 million, and wholesale sales rose 0.5% to $435,473 million...

meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,810.0 billion at the end of May, up 0.2 percent (±0.1%) from April, and 1.0 percent (±0.5%) higher than in May a year earlier...the value of end of April inventories was revised down slightly from the $1,807.1 billion reported last month to $1,807.0 billion...seasonally adjusted inventories of manufacturers were estimated to be valued at $619,676 million, 0.1% lower than in April, inventories of retailers were valued at $601,151 million, 0.5% more than in April, while inventories of wholesalers were estimated to be valued at $589,154 million at the end of May, up 0.1% from April...all categories of business inventories are adjusted for price changes for national accounts data using item appropriate price indexes from the producer price index...since May producer prices for goods averaged a 0.7% increase, real business inventories for the month will thus be lower than April by about 0.5%, which itself was lower than at the end of the 1st quarter by an average of 0.1%...unless there is an inordinate build of inventories in June, the change from the $69.6 billion real inventory increase we saw in the 1st quarter could subtract as much as 2.00 percentage points from second quarter GDP...

Job Openings, Hiring and Firing All Down in May

the Job Openings and Labor Turnover Survey (JOLTS) report for May from the Bureau of Labor Statistics estimated that seasonally adjusted job openings fell by 345,000, from 5,845,000 in April to 5,500,000 in May, after April job openings were revised higher, from 5,788,000 to 5,845,000...May jobs openings were still 2.1% higher than the 5,384,000 job openings reported in May a year ago, as the job opening ratio expressed as a percentage of the employed fell from 3.9% in April to 3.7% in May, while it was unchanged from a year ago...the greatest drop in job openings was in wholesale trade, where openings fell by 104,000 to 151,000, while job openings in professional and business services rose by 60,000 to 1,021,000 (see table 1 for more details)...like most BLS releases, the press release for report is easy to understand and also refers us to the associated table for the data cited, which are linked at the end of the release...

Mortgage Delinquencies and New Foreclosures Up in May, Mean Time in Foreclosure At Record 1092 Days

the Mortgage Monitor for May(pdf) from Black Knight Financial Services (BKFS, formerly LPS) reported that there were 574,035 home mortgages, or 1.13% of all mortgages outstanding, remaining in the foreclosure process at the end of May, which was down from 595,235, or 1.17% of all active loans, that were in foreclosure at the end of April, and down from 1.59% of all mortgages that were in foreclosure in May of last year.....these are homeowners who at least had a foreclosure notice served but whose homes had not yet been seized, and the May "foreclosure inventory" now represents the lowest percentage of homes that were in the foreclosure process since the summer of 2007... new foreclosure starts, which have been volatile from month to month, rose to 62,085 in May from 58,728 in April but were down from 70,400 in May a year ago; new foreclosures over the past three months have been on a par with the level before the mortgage crisis began...

in addition to homes in foreclosure, BKFS data also showed that 2,152,935 mortgages, or 4.25% of all mortgage loans, were at least one mortgage payment overdue but not in foreclosure at the end of May, up from the 4.24% of homeowners with a mortgage who were more than 30 days behind in April, but down from the mortgage delinquency rate of 4.51% in May a year earlier...of those who were delinquent in May, 719,283 home owners, or 1.42% of those with a mortgage, were more than 90 days behind on mortgage payments, but still not in foreclosure at the end of the month, which was down from 730,179 such "seriously delinquent" mortgages in April...combining the total number of delinquent mortgages with those in foreclosure, we find that a total of 2,726,970 mortgage loans, or 5.38% of homeowners with a mortgage, were either late in paying or in foreclosure at the end of May, and that 1,293,318, or 2.55% of all homeowners, were in serious trouble, ie, either "seriously delinquent" or already in foreclosure at month end...

for the details of the historical mortgage crisis metrics covered by the Mortgage Monitor, we're including below that part of the monthly table showing the monthly count of active home mortgage loans and their delinquency status, which comes from page 16 of the pdf, which for some reason they made harder to read than it already was....the columns in the table below show the total active mortgage loan count nationally for each month given, number of mortgages that were delinquent by more than 90 days but not yet in foreclosure, the monthly count of those mortgages that are in the foreclosure process (FC), the total non-current mortgages, including those that just missed one or two payments, and then the number of foreclosure starts for each month over the past 5 months and for each January shown going back to January 2005…in the last two columns, we see the average length of time that those who have been more than 90 days delinquent have remained in their homes without foreclosure, and then the average number of days those in foreclosure have been stuck in that process because of the lengthy foreclosure pipelines…with the pickup in new foreclosures, the average length of delinquency for those who have been more than 90 days delinquent without foreclosure has slipped back to 519 days and is still down from the April 2015 record of 536 days, while the average time of delinquency for those who’ve been in foreclosure without a resolution has increased again and at 1092 days has again topped the record set last month…that means that the average homeowner who is in foreclosure now has been there roughly three years, which, considering that this year's new foreclosure starts were all less than 5 months old, suggests that many foreclosures started early in the crisis are still not yet completed…

Employers Add 287,000 Jobs in June, Unemployment Rate Up 0.2% as More Look for Work

the Employment Situation Summary for June reported the strongest monthly job creation since October and an increase in both the labor force participation rate and the unemployment rate, largely reversing May's metrics....estimates extrapolated from the establishment survey data indicated that employers added a seasonally adjusted 287,000 jobs in June, after the payroll job increase for May was revised down from 38,000 jobs to 11,000, and the April jobs increase was revised up from 123,000 jobs to 144,000, which meant that the combined number of jobs created over those two months was 6,000 less than was previously reported...the swing from just 11,000 new jobs in May to 287,000 jobs in June leads us to suspect an aberration in the May seasonal adjustment was the cause; the unadjusted data shows that 623,000 jobs were added in May, followed by 682,000 in June, so payroll job increases in both months saw substantial downward adjustments to produce the reported headline numbers...

seasonally adjusted job increases in June were spread throughout the service sector and in manufacturing, while the resource extraction sector lost 5,000 jobs and construction netted no change.....the leisure and hospitality sector added 59,000 jobs with the addition of 21,900 more jobs in bars and restaurants and 14,000 more jobs in performing arts and spectator sports...another 58,400 jobs were added in the health care and social assistance sector, topped by 15,000 additional jobs in hospitals and 14,500 in day care services for children...the relatively small information sector saw the addition of 44,000 jobs, with 28,700 in telecommunications and 10,900 in motion picture and sound recording industries...the broad professional and business services sector added another 38,000 jobs, with 15,200 of those in temporary help employment services...an additional 29,900 jobs were added in the retail sector, with 8,700 of those in general merchandise stores...another 22,000 jobs were added by various levels of government, with 9,100 of those in local education systems...in addition, the financial sector saw an increase of 16,000 jobs, with 7,300 of those in insurance...

the establishment survey also showed that average hourly pay for all employees rose by 2 cents to $25.61 an hour, after it had increased by a revised 6 cents an hour in May; at the same time, the average hourly earnings of production and non-supervisory employees increased by 4 cents to $21.51 an hour...employers also reported that the average workweek for all private payroll employees was unchanged at 34.4 hours for the 5th month in a row, while hours for production and non-supervisory personnel was also unchanged at 33.6 hours...similarly, the manufacturing workweek was unchanged at 40.7 hours, after the May manufacturing workweek was revised down a tenth of an hour, while factory overtime was at 3.3 hours for the seventh month in a row...

the data extrapolation from the June household survey indicated that the seasonally adjusted number of those who were employed rose by an estimated 67,000 to 151,097,000, while the estimated number of unemployed also rose by 347,000 to 7,783,000; and thus the labor force increased by a total of 414,000...since the working age population had grown by 223,000 at the same time, that meant the number of employment aged individuals who weren’t in the labor force fell by 191,000 to 94,517,000, a reduction that was enough to boost the labor force participation rate by 0.1% to 62.7%...however, since the increase in number employed was small relative to the increase in the population, the employment to population ratio, which we could think of as an employment rate, fell by 0.1% to 59.6%...meanwhile, with the large increase in the unemployed, most of whom had not been counted in May, the unemployment rate rose by 0.2% to 4.9%...at the same time, there was also a large 587,000 drop in the number who reported they were involuntarily working just part time, from 6,430,000 in May to 5,843,000 in June, which meant the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons" fell from 9.7% of the labor force in May to 9.6% in June, the lowest U-6 unemployment rate since April 2008....

like most reports from the Bureau of Labor Statistics, the employment situation press release itself is easy to read and understand, so you can get more details on these two reports from there...note that almost every paragraph in that release points to one or more of the tables that are linked to on the bottom of the release, and those tables are also on a separate html page here that you can open it along side the press release to avoid the need to scroll up and down the page..

May Trade Deficit Increase of 10.1% is Not Bad Enough to hit GDP

our trade deficit increased by 10.1% in May as the value of our exports decreased and our imports increased....the Census report on our international trade in goods and services for May indicated that our seasonally adjusted goods and services trade deficit rose by $3.8 billion (rounded) to $41.1 billion in May from a revised April deficit of $37.4 billion...the value of our May exports fell by $0.3 billion to $182.4 billion on a $0.2 billion decrease to $119.8 billion in our exports of goods and a $0.1 billion decrease to $62.5 billion in our exports of services, while our imports rose $3.4 billion to $217.1 billion on a $3.4 billion increase to $182.1 billion in our imports of goods while our imports of services were virtually unchanged at $41.4 billion...export prices were on average 1.1% higher in May, so the relative real amount of May exports would be lower than the nominal amount by that percentage, while import prices were 1.4% higher, meaning real imports were smaller than the nominal dollar values reported here by that percentage....

most of the decrease in our May exports could be accounted for by lower exports of capital goods and of automotive vehicles, parts, and engines, which were partially offset by an increase in exports of foods, feeds, and beverages.... referencing the Full Release and Tables for May (pdf), in Exhibit 7 we find that our exports of capital goods fell by $835 million to $42,689 million on decreases of $446 million in exports of civilian aircraft and $279 million in exports of computer accessories....in addition, our exports of automotive vehicles, parts, and engines fell by $348 million to $12,588 million on a $334 million decrease in our exports of automotive parts other than tires and engines, and our exports of consumer goods fell by $236 million to $15,568 million on a $224 million decrease in our exports of jewelry and a $141 million decrease in our exports of pharmaceuticals, which was partially offset by a $327 million increase in our exports of artwork, antiques, and other collectibles....at the same time, our exports of foods, feeds and beverages rose by $544 million to $10,364 million on a $213 million increase in our exports of soybeans, and our exports of industrial supplies and materials rose by $47 million to $32,529 million on increases in exports of $486 million in petroleum products other than fuel oil, $240 million in our exports of natural gas liquids, and $208 million in our exports of crude oil, which were partially offset by a $552 million decrease in our exports of nonmonetary gold...meanwhile, our exports of other goods not categorized by end use rose by $489 million to $5,407 million....

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our imports and shows that a $2,319 million increase to $36,172 million in our imports of industrial supplies and materials accounted for more than two-thirds of the increase in our imports, as our imports of nonmonetary gold rose by $956 million, our imports of crude oil rose by $735 million, and our imports of finished metal shapes rose by $197 million...in addition, our imports of consumer goods rose by $1,253 million to $47,945 million on a $215 million increase in our imports of jewelry and a $210 million increase in our imports of cellphones, and our imports of automotive vehicles, parts and engines rose $267 million to $29,003 million on a $413 million increase in our imports of passenger cars...at the same time, our imports of foods, feeds, and beverages rose by $78 million to $10,802 million with small increases in several line items, and our imports of goods not categorized by end use rose by $240 million to $7,601 million....offsetting those increases, our imports of capital goods fell $864 million to $48,704 million on a $963 million decrease in our imports of civilian aircraft and a $348 million decrease in our imports of computers, which were only partially offset by by a $516 million increase in our imports of telecommunications equipment...

to gauge the impact of April and May's international trade on 2nd quarter domestic growth figures, we need to use exhibit 10 in the pdf for this report, which gives us monthly goods trade figures by end use category and in total, already adjusted in chained 2009 dollars, the same inflation adjustment used by the BEA to compute trade figures for GDP, albeit they are not annualized here.....from that table, we can estimate that 1st quarter real exports of goods averaged 117,576.3 million monthly in 2009 dollars, while inflation adjusted April and May exports were at 119,443 million and 117,626 million respectively in the same 2009 dollar quantity index representation... annualizing the change between the first quarter and the April - May average, we find that the 2nd quarter's real exports are running at a 3.3% annual rate above those of the 1st quarter, or at a pace that would add about 0.27 percentage points to 2nd quarter GDP if maintained through June.....in a similar manner, we find that our 1st quarter real imports averaged 178,034 million monthly in chained 2009 dollars, while inflation adjusted April and May imports were at 177,996 million and 178,730 million in inflation adjusted dollars respectively...that would indicate that so far in the 2nd quarter, our real imports have increased at a 0.7% annual rate from those of the 1st quarter...since imports subtract from GDP because they represent the portion of consumption or investment that occurred during the quarter that was not produced domestically, their increase at a 0.7% rate would thus subtract about 0.09 percentage points from 2nd quarter GDP....hence, if the trade deficit at the April - May level is maintained through June, our improving balance of trade in goods would add about 0.18 percentage points to the growth of 2nd quarter GDP....note that we have not computed the impact of the less volatile change in services here because the Census does not provide inflation adjusted data on that trade; moreover, there is usually not enough change in nominal exports and imports of services to materially impact GDP anyway..

this report also indicated that the seasonally adjusted value of May factory shipments rose for the third month in a row, after being down 8 straight months, increasing by $0.2 billion to $456.5 billion, an amount considered statistically unchanged, following a 0.4% increase in April, which had previously been reported as an 0.5% increase...shipments of durable goods were down by $0.6 billion or 0.2 percent to $231.6 billion, virtually unchanged from what was published two weeks ago...meanwhile, the value of shipments (and hence of "new orders") of non-durable goods rose by $0.8 billion, or 0.3%, to $224.9 billion, as a $0.7 billion, 2.1% increase in the value of shipments from refineries drove the increase...

meanwhile, the aggregate value of May factory inventories fell for the 12th time in the past thirteen months, decreasing by $0.8 billion or 0.1 percent to $619.7 billion, following a April decrease of 0.1% that was virtually unrevised from the previously published figure....inventories of durable goods decreased in value by $1.1 billion or 0.3 percent to $382.6 billion, virtually unrevised from what was reported was reported in the advance report....the value of non-durable goods' inventories increased by $0.3 billion to $237.1 billion, following a decrease of 0.2% in April....producer prices for finished goods were up 0.7% in May, following an increase of 0.2% in April, with producer prices for energy goods up 2.8% and core producer prices up 0.3%, so after factory inventories are adjusted for inflation, they will likely show a real decrease on the order of 0.8% for the month, following the 0.3% real decrease in April...with two months of factory inventory data in the books, then, it thus appears that this real inventory contraction will result in a substantial subtraction from 2nd quarter GDP figures when they're released at the end of July...

1st Quarter GDP Revised to Show Growth at a 1.1% Rate on Deflator Revision

the Third Estimate of our 1st Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services increased at a 1.1% annual rate in the quarter, revised from the 0.8% growth rate reported in the second estimate last month, as non-residential fixed investment fell less than was previously reported, our exports increased, rather than decreased, and prices indices for all components of GDP were revised lower...in current dollars, our first quarter GDP grew at a 1.4% annual rate, same as was reported in the 2nd estimate, increasing from what would extrapolate to $18,164.8 billion annually in the 4th quarter to an annualized $18,230.1 billion in the 1st quarter, with the headline 1.1% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging less than 0.4%, revised from 0.6%, was applied to the current dollar change...

the press release for GDP reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit over 4 times of that what actually occurred over the 3 month period, and the prefix "real" is used to indicate that each change has been adjusted for inflation using price changes chained from 2009....all percentage changes in this report are then calculated from those 2009 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts...given the misunderstanding evoked by the press release, all the data that we'll use in reporting the changes here will come from the pdf for the 3rd estimate of 1st quarter GDP, which is linked to on the sidebar of the BEA press release...specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 2nd quarter of 2012, table 2, which shows the contribution of each of the components to the GDP figures for those quarters and years, table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components, table 4, which shows the change in the price indexes for each of the components, and table 5, which shows the quantity indexes for each of the components, which are used to convert current dollar figures into units of output represented by chained dollar amounts...the pdf for the 2nd estimate for the 1st quarter, which this estimate revises, is here...

real personal consumption expenditures (PCE), the largest component of GDP, were revised to show growth at a 1.5% annual rate in the 1st quarter, rather than the 1.9% growth rate reported last month, as a 1.7% increase in the rate of personal spending was deflated with an annualized 0.2% increase in the PCE price index, an inflation adjustment which was revised from the 0.3% PCE price index reported in the second estimate....real consumption of durable goods fell at a 1.6% annual rate, which was revised from the 1.2% decrease shown in the second estimate, and subtracted 0.12 percentage points from GDP, as a drop in consumption of automobiles & parts at a 12.3% rate more than offset an increase in real consumption of recreational goods and vehicles at a 9.6% rate, while growth in consumption of other durable goods was down as well...real consumption of nondurable goods by individuals rose at a 1.2% annual rate, revised from the 1.3% increase reported in the 2nd estimate, and added 0.15 percentage points to 1st quarter growth, as relatively large increases in real consumption of both food and energy goods offset small decreases in real consumption of clothing and other non-durable goods....meanwhile real consumption of services rose at a 2.1% annual rate, revised from the 2.6% rate reported last month, and added 0.99 percentage points to the final GDP tally....recreational services, transportation services and financial services, which had all been reported growing in the 2nd estimate, were all revised to show slight contraction with this release...

seasonally adjusted real private domestic investment contracted at a 1.8% annual rate in the 1st quarter, revised from the 2.8% contraction estimate made last month, as the contraction in real private fixed investment was revised from a 1.5% rate to a 0.4% rate, while the contraction in inventory growth was largely unchanged from the 2nd estimate...the contraction in investment in non-residential structures was revised from shrinking at a 8.9% rate to a contraction at a 7.9% rate, investment in equipment contracted at a 8.7% rate, not the 9.0% rate previously reported, and investment in intellectual property products, which had previously been estimated to be shrinking at a 0.1% rate, was revised to show growth at a 4.4% rate...meanwhile, growth in residential investment was revised lower, from growth at a 17.1% rate to growth at an 15.6% annual rate…after those revisions, the contraction in investment in non-residential structures subtracted 0.22 percentage points from the 1st quarter growth rate, lower investment in equipment subtracted 0.54 percentage points from 1st quarter growth, while the increase in investment in intellectual property added 0.18 percentage points and the growth in residential investment added 0.52 percentage points to 1st quarter GDP...

meanwhile, the growth in real private inventories was revised from the previously reported $69.6 billion real growth rate to show inventory grew by an inflation adjusted $68.3 billion rate in the 1st quarter.…that followed inventory growth at an inflation adjusted $78.3 billion rate in the 4th quarter, and hence the $10.0 billion smaller real inventory growth in the 1st quarter subtracted 0.23 percentage points from the quarter's growth rate, which was unchanged from the second estimate....since slower growth in inventories indicates that less of the goods produced during the quarter were being left "sitting on the shelf”, their quarter over quarter decrease by $10.0 billion meant that real final sales of GDP were relatively greater by that much, and hence real final sales of GDP grew at a 1.3% rate in the 1st quarter, revised from the 1.0% growth in real final sales reported in the 2nd estimate, but still down from real final sales growth at a 1.6% rate in the 4th quarter...

the previously reported decrease in our real exports was revised to an increase with this estimate, while the previously reported decrease in real imports was revised slightly higher, and as a result our net trade became an addition to GDP, rather than a subtraction as was previously reported...our real exports grew at a 0.3% rate, rather than shrinking at a 2.0% rate as was reported in the second estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their increase added 0.04 percentage points to the 1st quarter's growth rate....meanwhile, the previously reported 0.2% decrease in our real imports was revised to a 0.5% decrease, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, their decrease conversely meant that 0.08 more percentage points were added to 1st quarter GDP....thus, our improving trade balance added a total of 0.12 percentage points to 1st quarter GDP, rather than the 0.21 percentage points subtraction from GDP that was indicated in the second estimate...

finally, there were only small revisions to real government consumption and investment in this 2nd estimate, as the real growth rate for the entire government sector was revised from growth at a 1.2% rate to growth at a 1.3% rate...real federal government consumption and investment was still seen to have shrunk at a 1.6% rate from the 4th quarter in this estimate, which was on net unrevised from the 1st estimate...real federal outlays for defense were revised to show shrinkage at a 3.7% rate, revised from the 3.6% rate previously reported, and subtracting 0.16% percentage points from 1st quarter GDP, while all other federal consumption and investment grew at a 1.6% rate, which was unrevised, and added 0.04 percentage points to GDP, just as before.....note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of those goods or services...in addtion to federal outlays, real state and local consumption and investment grew at a 3.2% rate in the quarter, which was revised from a 2.9% rate in the 2nd estimate, and added 0.34 percentage points to 1st quarter GDP...

our FRED bar graph below has been updated with these latest GDP revisions...each color coded bar shows the real inflation adjusted change, expressed in billions of chained 2009 dollars, in one of the major components of GDP over each quarter since the beginning of 2013...in each quarterly grouping of seven bars on this graph, the quarterly changes in real personal consumption expenditures are shown in blue, the changes in real gross private investment, including structures, equipment and intangibles, are shown in red, the quarterly change in real private inventories is in yellow, the real change in imports are shown in green, the real change in exports are shown in purple, while the real change in state and local government spending and investment is shown in pink, and the real change in Federal government spending and investment is shown in grey...those components of GDP that contracted in a given quarter are shown below the zero line and subtract from GDP, those that are above the line grew during that quarter and added to GDP; the exception to that is imports in green, which subtract from GDP, and which are shown on this chart as a negative, so that when imports shrink, they will appear above the line as an addition to GDP, and when they increase, they'll appear below the zero line...it’s fairly clear from this graph that the weak growth in the first quarter was due to the smallest increase in real personal consumption expenditures in 2 years, combined with little contribution from other sectors of the economy other than state and local governments, as shown in pink below…

May Personal Income up 0.2%; 2 Months PCE Would Add 2.66 Percentage Points to Q2 GDP

the May report Personal Income and Outlays from theBureau of Economic Analysis gives us nearly half the data that will go into 2nd quarter GDP, since it gives us 2 months of data on our personal consumption expenditures (PCE), which accounts for more than 2/3rds of GDP, and the PCE price index, the inflation gauge the Fed targets, and which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated....this same report also gives us monthly personal income data, disposable personal income, which is income after taxes, and our monthly savings rate...however, because this report feeds in to GDP and other national accounts data, the change reported for each of those are not the current monthly change; rather, they're seasonally adjusted amounts at an annual rate, ie, they tell us how much income and spending would increase for a year if May's adjusted income and spending were extrapolated over an entire year...however, the percentage changes are computed monthly, from one month's annualized figure to the next, and in this case of this month's report they give us the percentage change in each annualized metric from April to May....

therefore, when the opening line of the press release for this report tell us "Personal income increased $37.1 billion, or 0.2 percent, and disposable personal income (DPI) increased $33.9 billion, or 0.2 percent, in May", they mean that the annualized figure for seasonally adjusted personal income in May, $15,896.7 billion, was $37.1 billion, or somewhat more than 0.2% greater than the annualized personal income figure of $15,859.7 billion for April; the actual, unadjusted change in personal income for April to May is not given...similarly, annualized disposable personal income, which is income after taxes, also rose by more than 0.2%, from an annual rate of an annual rate of $13,857.1 billion in April to an annual rate of $13,891.1 billion in May...all the contributors to the increase in personal income, listed under "Compensation" and "Other Personal Income" in the press release, are also annualized amounts, which can be more clearly seen in the Full Release & Tables (PDF) for this release...so when the press release, or a news account copying from it says, "Wages and salaries increased $14.7 billion in May, compared with an increase of $40.4 billion in April.", that really means wages and salaries would rise by $14.7 billion over an entire year if May's seasonally adjusted increase in wages and salaries were extrapolated over that year, just as personal current transfer payments from government agencies rose at a $4.8 billion annual rate and interest and dividend income, sometimes the largest contributor to the monthly personal income increase, rose at a $9.7 billion annual rate in May....since the way the press release is written often leads to media reports that parrot those lines the same way the BEA wrote them, we favor referencing the pdf in reviewing this report...

for the personal consumption expenditures (PCE) that we're most interested in today, BEA reports that they increased at a $53.5 billion annual rate, or by a bit more than 0.4 percent, as the annual rate of PCE rose from $12,645.9 billion in April to $12,699.4 in May; that happened as the April PCE figure was revised up slightly from the originally reported $12,645.8 billion annually and March PCE was revised down from $12,526.5 billion to $12,504.7 billion, and prior months were slightly revised as well, all of which was already captured by the 3rd estimate of 1st quarter GDP....the current dollar increase in May spending resulted from a $20.8 billion annualized increase to an annualized $4,070.9 billion annualized in spending for goods, and a $32.7 billion increase to $8,628.5 billion in annualized spending for services....total personal outlays for May, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $57.0 billion to $13,160.4 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $730.6 billion annual rate in May, down a bit from the revised $753.7 billion annualized personal savings in April... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 5.3% in May from April's savings rate of 5.4%...

as you know, before personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption....the BEA does that by computing a price index for personal consumption expenditures, which is a chained price index based on 2009 prices = 100, and which is included in Table 9 in the pdf for this report...that index rose from 110.247 in April to 110.431 in May, a month over month inflation rate that's statistically 0.1669%, which BEA reports as an increase of 0.2 percent, following the PCE price index increase of 0.3% they reported for April...applying that inflation adjustment to the nominal amounts of spending left real PCE up 0.3% in May, after the April real PCE increase was revised from 0.6% to 0.8% ...notice that when those price indexes are applied to a given month's annualized PCE in current dollars, it yields that month's annualized real PCE in our familiar chained 2009 dollars, which are the means that the BEA uses to compare one month's or one quarter's real goods and services produced to another....that result is shown in table 7 of the PDF, where we see that May's chained dollar consumption total works out to 11,500.2 billion annually, 0.2554% more than April's 11,470.9 billion, a difference that the BEA reports as 0.3%...

however, to estimate the impact of the change in PCE on the change in GDP, the month over month changes don't help us much, since GDP is reported quarterly...thus we have to compare April and May's real PCE to the the real PCE of the 3 months of the first quarter....while this report shows PCE for all those amounts monthly, the BEA also provides the annualized chained dollar PCE for those three months in table 8 in the pdf for this report, where we find that the annualized real PCE for the 1st quarter was represented by 11,372.9 billion in chained 2009 dollars..(that's the same as is shown in table 3 of the pdf for the revised 1st quarter GDP report)....then, by averaging the annualized chained 2009 dollar figures for April and May, 11,470.9 billion and 11,500.2 billion, we get an equivalent annualized PCE for the two months of the 2nd quarter that we have data for so far....when we compare that average of 11,485.6 to the 1st quarter real PCE of 11,372.9, we find that 2nd quarter real PCE has grown at a 4.02% annual rate for the two months of the 2nd quarter we have...(note the math to get that annual rate: (((11,470.9 + 11,500.2) /2) / 11,372.9) ^ 4 = 1.040213...that's a pace that would add 2.66 percentage points to the growth rate of the 2nd quarter by itself, even if there is no improvement in June PCE from that average...

the Census Bureau report on construction spending for May (pdf) estimated that May's seasonally adjusted construction spending would work out to $1,143.3 billion annually if extrapolated over an entire year, which was 0.8 percent (±1.3%)* below the revised annualized estimate of $1,152.4 billion of construction spending in April but still 2.8 percent (±1.6%) above the estimated annualized level of construction spending in May of last year...as a result of an annual revision, the April spending estimate was revised 1.6% higher, from $1,133.9 billion to $1,152.4 billion, while the annual rate of construction spending for March was revised from $1,155.1 billion to $1,176.4 billion, and the annual rate of February construction spending was revised up from $1,137.9 billion to a $1,157,7 billion rate...combined, the revisions to February and March construction spending would suggest that 1st quarter GDP, which had been released 3 days earlier, will be revised higher when annual revisions to GDP are released in early August...construction spending tor the first 5 months of 2016 has now amounted to $438.5 billion, 8.2 percent (±1.3%) above the $405.4 billion in construction spending for the same 5 months of 2015..

private construction spending was at a seasonally adjusted annual rate of $859.3 billion in May, 0.3 percent (±1.0%)* below the upwardly revised April estimate of $861.9 billion, with residential spending of $451.9 billion statistically unchanged (±1.3%)* from the upwardly revised annual rate of $446.3 billion in April, while private non-residential construction spending fell 0.7 percent (±1.0%)* to $407.4 billion from the revised April level on a 4.5% decrease in private spending for construction of educational facilities and a 10.4% decrease in construction spending for religious facilities...at the same time, public construction spending was estimated to be at an annual rate of $284.0 billion, 2.3 percent (±2.6%)* below the revised April estimate of $290.5 billion, with public spending for education down 5.4 percent (±7.2%)* to an annual rate of $66,774 billion...

construction spending inputs into 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and into government investment outlays, for both state and local and Federal governments.... however, gauging the impact of revised April and May construction spending here on GDP is not as straightforward as the PCE computation, where all the inflation adjusted metrics are included in the report...adjusting construction for price changes is no easy matter, either....the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators that are used by the BEA for the various components of non-residential investment, such as the Turner Construction building-cost indices for several types of buildings and the Engineering News Record construction cost index for utilities construction, plus use of the Census Bureau construction price indexes for new one-family houses under construction and for new multi-family homes under construction for residential investment...so for a quick estimate, we've decided to use the producer price index for final demand construction as an inexact adjustment for aggregate construction cost changes…that index showed that construction costs were up 0.1% in May, up 0.8% in April, up 0.1% in March and down 0.2% in February and down 0.4% in January...construction spending totals for those same months, in that order and in millions of dollars, were 1,143,257, 1,152,363, 1,176,380, 1,157,704, and 1,144,928, a fairly obvious quarter over quarter contraction...since we want to know the inflation adjusted rate of contraction, then, our calculation becomes (1+ (1 -((1,143,257 + 1.001 * 1,152,363)/2) / ((1.009 * 1,176,380 + 1.010 * 1,157,704 + 1.008 *1,144,928) / 3)) )^4, indicating that construction spending has been shrinking at a 7.6% annual rate thus far in the second quarter...if June shows no improvement, that contraction in construction would be enough to subtract 0.52 percentage points from 2nd quarter GDP in those components that it influences...

note on the graphs used here

in March a year ago the St Louis Fed, home to the FRED graphs, changed their graphs to an interactive format, which apparently necessitated eliminating some of the incompatible options which we had used in creating our static graphs before then...as a result, many of the FRED graphs we've included on this website previous to that date, all of which were all created and stored at the FRED site and which we'd always hyperlinked back there, were reformatted, which in many cases changed our bar graphs to line graphs, and some cases rendered them unreadable... however, you can still click the text links we've always used in referring to them to view versions of our graphs as interactive graphs on the FRED site, or in the case where an older graph has gone missing, click on the blank space where it had been in order to view it in the new format....